Disgruntled staff streamed out of General Motors factories across the US yesterday as the country's main car workers' union called a nationwide strike in a protest over healthcare benefits and job security.

The stoppage is the US's biggest industrial walk-out for seven years and has brought the world's second biggest carmaker to a virtual standstill, halting production of brands such as Chevrolet, Cadillac, Hummer and Buick. It poses a potentially devastating obstacle to the cash-strapped company's hopes of reversing losses of $2.2bn (£1.1bn) last year.

After two months of talks culminating in an all-night session, the United Auto Workers (UAW) set a deadline of 11am for an agreement with GM bosses on a new long-term contract setting collective terms and conditions. When the deadline passed without a deal, the UAW told its 73,000 members at the company to lay down their tools. Within minutes, workers began emerging through factory gates at sites throughout the US automotive heartland in Michigan and across the country.

Union officials gave them signs bearing slogans such as "Americans have rights" and "Nafta bankrupts America" - a reference to free-trade agreements widely blamed for the incursion of cheaper Asian vehicles into the US market.

The UAW's president, Ron Gettelfinger, told a press conference in Detroit that the company was refusing to budge on key issues. "It was a one-way round of negotiations - it was going to be GM's way at the expense of the workforce," he said. "The company walked up to the deadline like they really didn't care."

Talks were due to resume later in the day but Mr Gettelfinger warned that the strike would continue unless GM made immediate concessions. "The frame of mind we're in right now, we would expect the company to move expeditiously." At the heart of the stand-off are vast liabilities run up by GM, Ford and Chrysle on healthcare plans for retired employees. The cost of this medical cover adds between $900 and $1,400 to the price of every car and GM alone has an estimated exposure of more than $50bn.

GM wants to shift some of these obligations to a trust to be administered by the union, but they have been unable to agree on terms. A second sticking point is that the UAW has demanded assurances on job security after 34,000 job losses at the company.

David Healy, an analyst at Burnham Securities, said that a prolonged shutdown would cost GM between $325m and $350m a week. But a few days' stoppage would actually boost the company's coffers.

"One of the oddities of this type of situation is the first thing that happens is the company's cash goes up. The payroll stops and GM will get income from all the cars still being sold in showrooms," he said.

"My guess is it's going to be a short strike because they're pretty close to an agreement. The union probably thought a little theatre might help them get over the line."

In common with its US rivals, GM has struggled to cope with increases in the cost of fuel, aluminium, plastic and steel. The record cost of petrol at the pump has encouraged consumers to switch to more fuel-efficient cars that Asian competitors have proven adept at providing.

In a brief statement, GM said it was "disappointed" by the strike and was "fully committed" to working with the union.

GM's chief executive, Rick Wagoner, held a conference call over the weekend with his counterparts at Ford and Chrysler, who face similar negotiations and who are watching developments anxiously.